The Federal Open Market Committee meeting minutes of the meeting ending on November 09 were released today and largely confirmed the outlook that has been subject of much speculation recently, which is that the Federal Reserve are likely to introduce another rate hike in December with nearly all meeting participants agreeing on that point.
There was less agreement, however, on whether or not the previously-discussed plan of introducing four rate hikes in 2019 is still to go ahead, which has in a way been reflected in the more recent statement from Federal Reserve chairman Jerome Powell’s statement saying that interest rates are nearing a neutral range.
- Today’s FOMC statement says that “solid” economic growth is likely to continue in the near-term.
- The intermediate-term may see risk arising from credit availability.
- The high level of corporate debt being assumed in the non-financial sectors was a concern to several participants.
- A more moderate monetary policy may be hinted at through suggestions that milder language be used in statements, with “further gradual increases” being deemed too inflexible.
The participants did state that in the medium term, further increases in the federal funds target range would be consistent with the continued strong economic activity, the tight labor market, and a rate of inflation in or near the 2% range.
The Committee’s choice of words is up for review for the post-meeting statement, with participants commenting in particular on the phrase “further gradual increases." Participants also discussed higher tariffs and uncertainty regarding trade policy, their perception of slowing global demand, rising input costs, and higher interest rates as factors in the moderation of global economic growth.
There was also consensus among some participants that the federal funds rate was indeed reaching a neutral level, and that further rate hikes could negatively impact economic expansion and inflation expectations without good cause.
Economic and financial developments in other nations were discussed in the context of the US dollar appreciating in value further and potential risks regarding inflation and domestic economic growth.
Other participants viewed further rate hikes as necessary although expressed uncertainty regarding the appropriate timeline to introduce them.
Gregory Daco, Chief US Economist for Oxford Economics, stated the firm’s view that the Fed would be “showing greater flexibility” in monetary policy in 2019, and said that Oxford Economics foresee two rate hikes in 2019, not four.
#FOMC Minutes of the Nov7-8 meeting:
- another rate hike would be warranted "fairly soon" -> December seems locked in
- #Fed communication to transition away from "further gradual" rate increases language
- indicate more emphasis on incoming data --> see Clarida's speech pic.twitter.com/GneXLgt0n9
— Gregory Daco (@GregDaco) November 29, 2018
Gold prices saw little reaction to the FOMC press release, although the policy regarding interest rates is sure to impact trading in the near future. Spot gold is trading at $1,224.4/oz at the time of writing with an increase of 0.25% on the day which has seen a high of $1,224.71/oz and a low of $1,222.50/oz.